Renewable Energy Cost Explosion: €25,000 Euros For Each German Family Of Four

Date: 11/10/16

Daniel Wetzel, Die Welt

The Institute for Competition Economics at the University of Dusseldorf has calculated the total cost of Germany’s Green Energy Transition. The result: By 2025, an estimated €520 billion euros will be spent. A family of four will pay more than 25,000 euros for the Energiewende.

Seldom was a German environment minister more ridiculed and mocked than Peter Altmaier (CDU): Three years ago, the current Chancellery Minister warned that the cost of the Energiewende could, if nothing were done, “cost the country around one trillion euros by the 2030.”

Major magazines and weekly newspapers from Wirtschaftswoche to Die Zeit immediately snapped that the environment minister must have got it wrong. “Don’t scare the living daylights out of people with horror figures,” Baden-Württemberg’s Prime Minister and Green Party star Winfried Kretschmann demanded.

Until now, the green energy transition in Germany has swallowed up more than 150 billion euros; Source: Infographics World

Perhaps the time has come to rehabilitate Peter Altmaier. That’s because the Institute for Competition Economics (DICE) at the University of Dusseldorf has calculated the direct and indirect total cost of the energy transition up to 2015 and estimated the additional cost by 2025. The result shows that the one trillion Euro threshold might be reached earlier than even Altmaier had believed.

370 billion euros in the next decade

According to the institute’s calculations, the Energy Transition has already cost some €150 billion euros for the period 2000-2015. “For the years 2000 to 2025 it is estimated that some €520 billion euros (nominal, including network expansion costs) will be spent for the transformation of power generation.” Based on the 150 billion euros already spent, an additional 370 billion euros will be spent in the coming decade.

“Per capita, from newborns to the elderly, this amounts in total of more than €6300 euros, which accumulates in the period from 2000 to the end of the year 2025”, says DICE director Justus Haucap: “A family of four thus pays over €25,000 euros, directly and indirectly, for the Energiewende.” The bulk of the cost is not incurred yet, but awaits the consumer in coming years,” said Haucap:” In the next ten years it will be 18,000 euros for a family of four.”

By comparison, 40 percent of German households have net assets of less than €27,000 euros according to figures by the Deutsche Bundesbank.

Report commissioned by Initiative New Social Market Economy

The Institute carried out the calculations on behalf of the Initiative New Social Market Economy (INSM). The institute is funded by employers associations and campaigns for less government regulation and a social market economy. In the past few years the institute has called for the promotion of renewable energies to be more aligned along market principles.

The study is unlikely to be a report that panders to the client: For four years, competition economist Haucap was chairman of the Federal President German Monopolies Commission appointed by the German President and is co-editor of numerous international economics journals.

In addition, the prognosis on the future cost of renewable energy subsidies are based on data from the Öko-Instituts and therefore from an institution that, says Haucap, “is not suspected of exaggerating the costs of this energy revolution”.

Biggest cost: the Renewable Energy Levy (EEG)

According to the study, most of the direct cost of the energy transition are due to the EEG surcharge to subsidise green electricity production and the so-called cogeneration levy to subsidise combined electricity-heat (CHP) producers.

The EEG surcharge has already cost €125 billion euros by the end of last year. By 2025 this figure is expected to rise to 408 billion euros due to the rapidly growing number of renewable energy projects. Including the CHP allocation this will rise to €425 billion euros.

On top of that there are additional indirect costs of the energy transition. The DICE Institute expects the cost for expanding network transmission and distribution to be around €56 billion euros, plus costs for the offshore liability levy to protect offshore wind power, as well as the cost of feed-in management, “Re-Dispatch” and reserve capacity.

Finally, the Institute also includes low-interest loans from the KfW banking group, research expenses and the impairment of conventional power plants as well as the negative electricity prices to the overall costs. All in all, the total cost of Germany’s energy transition amounts to just over €520 billion euros of which 80% is due to the Renewable Energy Surcharge (EEG).

Energy Transition Chaos Paid By The Electricity Consumers

Assertions that the energy transition also has cost-saving effects for consumers are rejected by Haucap. Representatives of the renewable energy industry often argue that the expansion of renewables had led to falling electricity prices on the wholesale market; they also claim that thanks to renewables there are lower import costs for fuels such as coal, gas and uranium.

According Haucap, however, these price effects have already been taken into account in the calculations. The report is based on the EEG’s pure differential costs that are the direct result of wholesale prices. Therefore, one should “not deduct twice” these price-reducing effects.

The energy transition is “not only a problem for convinced social marketeers like us,” said Hubertus Pellengahr, CEO of the Initiative New Social Market Economy: “The reason has twelve digits and a currency symbol. €520 billion euros.”

The energy transition “is out of control and will remain out of control”, Pellengahr said, pointing to the continued rise in the Renewable Energy Surcharge (EEG) in coming years. “At the end of the day, this chaos is being pay for by the energy consumers.”

Extremely poor cost-benefit ratio

On Friday, the Federal Network Agency will publish the official amount of the renewable energy levy every energy consumer will have to pay next year to subsidise green energy producers. First estimates suggest an increase from 6.35 cents to 7.1 cents per kilowatt hour. “This would represent approximately a doubling of the cost in five years,” said Pellengahr.

Back in 2003 the then Federal Environment Minister Jürgen Trittin (Green Party) had assured Germans that the energy transition would cost consumers “no more than a scoop of ice cream per month free.” Since then the Renewable Energy Levy (EEG) has risen seventeen-fold.

DICE-director and study author Haucap stressed that the 520 billion euro cost was far from over-all. That’s because the sum only refers to the period up to 2025 and the only covers the electricity sector. In the meantime, “sector coupling” has become the official goal of German energy policy and thus the decarbonisation of transport, the heating sector and agriculture.

“After 2025, the energy transition won’t be cost free” Haucap said. In fact, the current policy’s cost-benefit ratio is extremely poor: Germany’s CO2 emissions today are the same as in 2009. Thus, Germany’s energy transition policy has “saved zero tons of CO2 — for a lot of money.”

More market economy in climate protection

Pellengahr and Haucap argued for a future climate policy based on market instruments. In their view, the best option would be strengthening of the EU’s emissions trading scheme. The second best option would be the introduction of a quota model along the Swedish model. Utilities would be required to deliver a certain proportion of renewable energy. This would create a price-lowering competition between different types of renewable energy.

The Federal Association of Renewable Energies (BEE) said that Haucap’s calculations of the renewable energy surcharge “is not suitable as a cost indicator for the energy transition.” Haucap’s proposed quota system would also be “significantly more expensive than the EEG.”

Meanwhile, the Federal Association of New Energy Suppliers (bne) has presented a proposal according to which the Renewable Energy Surcharge should in future be extended to the use of fossil fuels. If, in future, green energy levies would also have to be paid for the consumption of natural gas, oil, petrol and diesel, the Renewables Energy Surcharge on electricity could be almost halved. Moreover, it would offer incentives for carbon-free heaters and electric cars, enhancing the planned “sector coupling” of Germany’s energy revolution.